Question

martina made deposits of $2,000 at the beginning of each year for four years. the rate...

martina made deposits of $2,000 at the beginning of each year for four years. the rate she earned is 5% annually. what's the value of martina's account in four years? a. $11,051.00 b. $9,051.20 c. $8,260.20 d. $8,260.00

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Answer #1

Formula for future value (FV) of annual annuity due is:

FV = (1+r) x P [(1+r) n-1/r]

r = Rate of interest = 5 % or 0.05 p.a.

P = Periodic payment = $ 2,000

n = No. of periods = 4

Putting all these values in above formula, we get the FV as:

FV = (1+0.05) x $ 2,000 [(1+0.05) 4-1/0.05]

FV = (1.05) x $ 2,000 [(1.05) 4-1/0.05]

FV = (1.05) x $ 2,000 [(1.215506 – 1)/0.05]

FV = (1.05) x $ 2,000 [(0.215506/0.05)

FV = 1.05 x $ 2,000 x 4.3101

FV = $ 9,051.21

Hence option “b. $ 9,051.20” is correct answer

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